Correlation Between Step One and Toys R

Can any of the company-specific risk be diversified away by investing in both Step One and Toys R at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Step One and Toys R into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Step One Clothing and Toys R Us, you can compare the effects of market volatilities on Step One and Toys R and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Step One with a short position of Toys R. Check out your portfolio center. Please also check ongoing floating volatility patterns of Step One and Toys R.

Diversification Opportunities for Step One and Toys R

0.85

Correlation Coefficient

Step One  Toys R

Very poor diversification

The 3 months correlation between Step and Toys is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Step One Clothing and Toys R Us in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toys R Us and Step One is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Step One Clothing are associated (or correlated) with Toys R. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toys R Us has no effect on the direction of Step One i.e., Step One and Toys R go up and down completely randomly.

Pair Corralation between Step One and Toys R

Assuming the 90 days trading horizon Step One Clothing is expected to under-perform the Toys R. But the stock apears to be less risky and, when comparing its historical volatility, Step One Clothing is 1.85 times less risky than Toys R. The stock trades about -0.26 of its potential returns per unit of risk. The Toys R Us is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  5.10  in Toys R Us on September 29, 2024 and sell it today you would earn a total of  0.00  from holding Toys R Us or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Step One Clothing  vs.  Toys R Us

Step One Clothing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Step One Clothing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Toys R Us

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toys R Us has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Step One and Toys R

The main advantage of trading using opposite Step One and Toys R positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Step One position performs unexpectedly, Toys R can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Toys R will offset losses from the drop in Toys R's long position.

The idea behind Step One Clothing and Toys R Us pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.